France Telecom Chief Richard Gets Board Backing for Top Job

France Telecom SA’s board voted to
keep Chief Executive Stephane Richard in the top job after he
was charged last week with fraud linked to his time at the
French finance ministry five years ago.

President Francois Hollande yesterday said the state, the
company’s biggest shareholder with a 27 percent stake and three
members on the board, would vote to keep him as chief. Richard
also had the support of employee shareholders of France Telecom,
also known as Orange.

The charges “don’t call into question the CEO’s capacity to
carry out the management of Orange fully and efficiently,” the
company said in a statement today.

With the board’s ruling, France Telecom averted a third
change at the helm in less than a decade at a time when the
former state-owned monopoly faces price wars at home and
political turmoil in some markets overseas. The 51-year-old
Richard was brought in to deal with a series of employee
suicides that unions linked to a reorganization under his
predecessor Didier Lombard.

“As long as he can function as chief executive, he should
stay,” Hollande said in an interview on M6 television
yesterday. “If his legal problems one day prevent him from
carrying out his functions, then the conditions will have
changed.”

France Telecom, which was the worst performer on the
benchmark CAC-40 index last year, rose 3.1 percent today to 7.59
euros in Paris.

‘Big Ship’

“Maneuvering France Telecom-Orange is like driving a really
big ship,” Benoit Maynard, a Paris-based analyst for Natixis
Securities, said before the board’s vote. “Richard has managed
to do quite a few things right, including developing the company
abroad.”

France Telecom’s 15-person board includes three directors
elected by workers and one appointed by employee shareholders.
Other members include France’s first woman astronaut Claudie Haignere and former Carrefour SA (CA) Chairman Jose Luis Duran.

Questions about whether Richard would keep his job had
arisen after French Industry Minister Arnaud Montebourg on June
6 -- before he was heard by judges -- was cited by Le Monde as
saying Richard should quit his job if charged, a statement he
later denied having made.

The fraud charge against Richard stems from the time when he
was chief of staff for then-Finance Minister Christine Lagarde
in former President Nicolas Sarkozy’s government --between 2007
and 2009.

Tapie Award

The charge, related to a dispute that began in 1993 between
a state-owned bank and French businessman Bernard Tapie, is
turning into a distraction for the phone carrier as it strives
to reverse falling sales. France Telecom is contending with
price wars in France and political turmoil in countries like
Egypt.

Tapie, who endorsed Sarkozy’s successful presidential
effort in 2007 and his failed re-election bid in 2012, won a 385
million-euro ($509 million) arbitration award in 2008, ending a
dispute with the government over his company’s sale of German
sportswear brand Adidas AG (ADS) in 1992. Tapie accused then-state-owned bank Credit Lyonnais of cheating him in the sale.

Lagarde, now managing director at the International Monetary
Fund, in her role as finance minister, didn’t appeal the
arbitration decision, saying “a very large majority” of the
money would return to the state through the creditors’ claims.

Richard Appeal

She has denied any wrongdoing and was heard last month in a
separate investigation. She averted being charged and was named
a key witness after two days of questioning.

Richard will appeal the judges’ decision to charge him and
“views their accusation as insulting and grotesque,” his
lawyer, Jean-Etienne Giamarchi, has said.

Keeping Richard is “a positive alternative to a CEO
appointed by this government, or worse the part of it associated
with Arnaud Montebourg,” Bernstein analyst Robin Bienenstock
wrote in a note.

Montebourg has ruffled feathers before. Last month, he
blocked France Telecom’s attempts to forge a partnership with
Yahoo! Inc. for its unit Dailymotion, a Youtube rival.

In November, the minister sparked a furor by calling for
the nationalization of a troubled local unit of ArcelorMittal,
which the world’s largest steelmaker was looking to shut down.

In February, Montebourg got into a war of words with Titan
International Inc. Chairman Maurice Taylor, who turned down a
proposal to buy a tire plant that Goodyear Tire & Rubber Co. is
closing in France.

Richard’s Record

Richard was called in to head France Telecom in March 2010
as the company worked to deal with dozens of employee suicides
that unions blamed on stress from reorganization efforts.

A member of the French business and political elite,
Richard made his personal fortune by participating in a
leveraged buyout of Nexity SA, the property developer created
from the real-estate assets of Generale des Eaux.

Born in Cauderan in southwestern France, he graduated from
France’s elite Grandes Ecoles, like top executives at several
large companies in France. He attended the Ecole des Hautes
Etudes Commerciales and the Ecole Nationale d’Administration.

He was hired by France Telecom in 2009 as an eventual
successor to Lombard, due to retire a few months later.

Richard’s ascent was hastened by more than 30 employee
suicides that took place from 2008 to 2010. Unions criticized
how management dealt with the issue, speeding up Richard’s move
to the top job. He became CEO in March 2010. Lombard is under
investigation for the suicides that ended his tenure.

Price Battles

After dealing with the social tensions, Richard has faced
the challenges of France’s phone market.

Competitor Iliad SA (ILD), a broadband provider, entered the
wireless services market and started selling discounted packages
starting at 2 euros per month in January 2012, prompting other
phone companies to cut their prices.

Richard signed a roaming agreement allowing Iliad to start
selling its packages before it had deployed a full network of
its own. Extra revenue from the agreement has so far partially
compensated sales lost because of falling prices and subscribers
leaving to Iliad.

France Telecom in the past three years entered Morocco, the
Democratic Republic of Congo and Iraq. Its fastest sales growth
-- up 5 percent to 4.1 billion euros -- came in the Middle East
and Africa last year and France Telecom forecasts that’ll rise
to 7 billion euros by 2015.

After the first quarter, France’s biggest phone company
said it would focus on cutting costs this year and keeping a lid
on debt as credit agencies increased pressure. First-quarter
earnings before interest, taxes, depreciation and amortization
fell 9 percent to 3.12 billion euros. Sales dropped 5.9 percent
to 10.28 billion euros.